Bitcoin: what does not kill us makes us stronger

12Feb201812:55

The popularity of crypto currencies in the media is a source of their demand

Supporters of crypto currencies are accentuating the attention of new buyers on their independence from the actions of any country, company or central bank. This quality allows them to consider bitcoin as a safe haven asset,whose growing cost is due to a deterioration in the global appetite for risk. The beginning of 2018 dealt at least two blows to a perfect, at a first glance, theory. First, the quotes of BTC/USD fell sharply in parallel with the US stock indices. Secondly, the crypto currency itself can become a source of increased turbulence in financial markets.

In response to the worst dynamics of the S&P500 since early 2016, bitcoin was marked by the biggest loss of capitalization in its history. Synchronous dynamics of assets further convinced the speculative nature of the latter, while the increase in volatility caused a serious blow to the demand for the initial placement of coins. If in December, the projects related to the ICO brought their issuers a record $1.6 billion, then in January the total amount of attracted capital significantly decreased ($911 million).

Dynamics of BTC/USD and S&P500

Источник: Bloomberg.

Dynamics of capital inflows within ICO

Source: Wall Street Journal.

If someone thought that after the rapid rally in 2017 the crypto currency has already won its place in the sun, now they need to change their worldview. Buying an asset that just grows is a thing of the past, and the number of short sellers is increasing by leaps and bounds. This is evidenced by the ING survey, according to which, at the beginning of 2017, only every tenth trader preferred shorts to longs, but a year later they already make up a quarter.

Dynamics of the proportion of BTC/USD sellers

Source: Bloomberg.

The number of bitcoin sellers is due to a worsening external background: bearish news comes with an alarming frequency, while bullish ones only prompt a sarcastic smile. In particular, Venezuela, displeased with American sanctions, is going to emit its own digital currency, and the city of Berkeley, the epicenter of liberal California, in response to dissatisfaction with the actions of Donald Trump, instead of issuing municipal bonds, plans to start dealing with the ICO.

Positions of sellers look much more serious: the Securities and Exchange Commission appealed to the Congress to create legislation on crypto currencies, which will allow the SEC, CFTC and the Fed to act strictly within the existing legal framework. If the Americans follow the path of South Korea, the consequences for bitcoin can be much more serious than in January. At the same time, the finance ministers of Germany and France noted that as capitalization increases, digital currencies can provoke turbulence in markets and threaten financial stability. According to the plenipotentiary of the ECB, Yves Mersch, tabloids themselves stimulate the growth of interest in crypto currencies by calling them this word. In fact, they are not money, but an ordinary speculative asset.

Let me agree with the representative of the central bank. Even rumors about bans cause demand, facilitating the consolidation of BTC/USD in the range of 6000-10000. It's one thing not to pay attention, the other is to dedicate the main pages of popular media to bitcoin.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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